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Four Factors to Watch Amid BTC Rally

Overview

Cryptocurrency has returned in the globalspotlight as the prices of bitcoin have topped the key 10000 levels again this week, and some strong rallies have been seen in the altcoin space.The leading crypto may have gained about 44% YTD, making it the best performing asset, among others. While crypto bulls have been cheering for the recent price actions, many could have been wondering what factors could affect the current rally other than the upcoming reward halving event? We’ve sorted out some of the recent developments in the crypto space, and market participants probably want to keep a close eye on it.

Near record low volatility

We want to highlightthe drop in BTC’s volatility despite the recent positive price actions. Prices of cryptocurrency are generally more volatile than other assets, such as equity indexes and traditional commodities like energy and metals. Volatility could providea measure of price uncertainty in markets.When volatility increases, traders may trim their cryptocurrency positions or delay investment decisions.

Figure 1 shows the 3-month realized volatility of BTCUSD, which recently dropped further near the record low in mid-November 2018. Generally, low volatility could encourage more HOD Lers to maintain their BTC holdings; therefore, it’s considered as a positive factor for the price.

fxsoriginal

Source: Skew

fxsoriginal

Source: Skew

However, we’ve also noticed that BTCUSD’s implied volatility has been hovering in recent lows, although it seems picked up by a small fraction. In the options market, implied volatility is the expected volatility of an underlying asset over the life of the option, in this case, bitcoin.

Supply and demand for the options could directly influence implied volatility. When the market’s expectations rise, the need for options increases, implied volatility will also increase. Conversely, when sentiments cool down, expectations decrease, demand for options decreases, implied volatility will also decrease.

In this case, the low implied volatility in the BTCUSD options market could some what indicate that the medium-term expectations of BTCUSD may not be as high as the current rally suggested. The changes in volatility could be something bitcoin watchers would like to keep a close eye on.

Search of bitcoin in China and world wide surged

Social has been one of the critical factors when it comes to cryptocurrency analysis, and the social sentiments ofthe crypto communities in China have long considered a barometer of the broader crypto space. The views of Chinese crypto watchers could give meaningful insight when it comes to price analysis.

The Baidu Search Index of the term “bitcoin” in Chinese has surged to a recent high of 40000 before settling down in near 25000. At the same time, data from Google Trends also shown a similar pattern, with the search of the term “Bitcoin” topped 100, which came at the time when bitcoin reclaimed the 10000 levels. However, the surge could bring pros and cons, and sometimes it sends a mixed signal to the market.

Bitcoin Price and Baidu Search Index

Source: Longhash

The Term “Bitcoin” on Google Trends

Source: Google Trends

A study from Sergey Krutolevich, Research Scientist at RoninAi, shows that spikes in conversation volume often precede spikes in search volume by one full day, and new price highs by one to three days. Indicating beyond just a clear correlation between social sentiment and crypto market prices, the former is, in fact, directly affecting the latter.”However, if one has stayed in the market long enough, it will probably be familiar that, when the FOMO buyers were rushing into the markets, it’s often considered as well signal for those who came in earlier.

Drop in market dominance

Another interesting phenomenon alongside with the BTC rally is the decline of the BTC market dominance. The below figure compares the market dominance between BTC and ETH in a one-year time frame. BTC’s market dominance has been in a downtrend since 2020, and the decline has been even steeper recently despite the gains in price. Comparatively, ETH’s market dominance has been rising at the time that BTC has been dropping.

We believe that capital allocations could be one of the reasons behind this divergence. Part of the capital could have left bitcoin and went into the altcoin space at the beginning of the year, as major altcoins have plummeted to near/at multi-year lows in 4Q19. That could draw attention from value-driven investors to get into altcoin trades.

fxsoriginal

Source: Tradingview

fxsoriginal

Source: Tradingview

Are we in the middle of an “Alt Season” or if markets are expecting an incoming one? Those remained some arguable questions. However, the fact that the total ex-BTC market cap has been increasing steadily since January. Altcoin watchers won’t want to miss the development of that, as it seems to retest the May-July tops (figure 6).

Virus and the expectations of QE

The COVID-19 outbreak remained the single largest uncertainty for the global economy, its effect ripples through global markets and assets, and cryptocurrency is no exception. Central banks in Asia have started to take measures to stimulate growth that hammered by the virus. Just this week, the PBoC announced the first batch of special re-lending funds for national and regional banks, aimed to help SMEs in China.

Although the virus’s impact on the US economy remains limited for now, the Fed has already prepared in case there’s an economic downturn, anaggressive QE program is on the table.

In recent testimony before the Senate Banking Committee, Fed Chair Jerome Powellsaid, “the Fed had two recession-fighting tools; buying government bonds, known as QE, and communicating clearly with markets about interest-rate policy, routinely considered as “forward guidance.” Powell added that “We will use those tools — I believe we will use them aggressively should the need arise to do so,”

While we do not expect the Fed would be the first one to restart QE due to the virus-driven economic downturn soon, it’s easy to see the easing narrative from policymakers around the world. If that easing story intensified, that could lead the markets to refocus on bitcoin’s store of value and as a tool to counter stagnant growth, and that could translate into increasing demand for crypto.

Conclusion

The recent BTC and altcoin rallies have drawn much of the markets’ attention. As we are getting closer to the bitcoin reward halving event, the bullish sentiment has been more noticeable. Besides the halving, crypto watchers won’t want to neglect the factors that we mentioned above when it comes to medium-term trend analysis to get a complete picture.

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Cryptocurrency

Preston Byrne: Peirce’s Safe Harbor Proposal Would Be Hilarious if It Weren’t so Serious

Preston Byrne, a columnist for CoinDesk’s new opinion section, is an attorney at Byrne & Storm, where he advises cryptocurrency miners, decentralized protocol developers, custom software development shops, and interactive computer services businesses. This is his bi-weekly column, “Not Legal Advice,” an opinionated roundup of bigger legal topics in the crypto space. And, yes, it is not legal advice. Hester Peirce’s CoinDesk op-ed about her Safe Harbor proposal is here.

Much ink has been spilled over the last six years about the extent to which U.S. securities laws can and should apply to the sales of cryptographic tokens by protocol developers.

The default position that a conservative law firm will follow is that in the U.S. the sale of a token by a protocol developer before a token network is launched is the sale of a security. Current Securities and Exchange Commission (SEC) policy appears to say that, in the life of any cryptocurrency, there will come a point when the token has been distributed to sufficiently many hands and the network’s architecture is sufficiently distributed – or as SEC corporate finance director Bill Hinman put it in 2018, “sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts,” and thus the token ceases to be a security.

SEC Commissioner Hester Peirce, aka “Crypto Mom,” thinks the government should facilitate startups that want to have a go at turning their definitely-are-securities-today into maybe-not-securities-tomorrow. She has proposed a safe harbor to achieve this, whereby token startups will be given a three-year head start to take an ICO coin and turn it into a “decentralized” network, i.e. one which:

is not dependent upon a single person or group to carry out the essential managerial or entrepreneurial efforts… (such that) the tokens must be distributed to and freely tradeable by potential users, programmers, and… secondary trading of the tokens typically provides essential liquidity for the development of the network and use of the token.

The three-year safe harbor period will allow protocol devs time to:

facilitate participation in, and the development of, a functional and/or decentralized network, unrestrained from the registration provisions of the federal securities laws so long as [certain] conditions are met.

In other words, under the proposal, crypto projects would be able to sell securities to the public and work towards “decentralization” by, among other things, selling still more of these securities and creating a robust market for these securities, in the hope that engaging in the sale and marketing of these securities will turn them into non-securities, despite the fact that they will function in the marketplace exactly as securities do today at all relevant times.

This proposal would be hilarious if it weren’t so serious.

The most significant issue is that the proposal relies on a standard for “decentralization” which isn’t entirely certain today. Although the SEC has “decentralization” guidelines in print, projects that appear technically indistinguishable receive differing regulatory treatment for reasons that, to industry experts, are not immediately apparent.

Take, for example, Block.one, Sia and Telegram. Block.one claims to have raised north of $4 billion in a yearlong, rolling ICO for the EOS blockchain that kicked off with the purchase of billboard advertising in Times Square at the Consensus 2017 conference. Sia did an unregistered [initial coin offering] also, raising roughly $150,000. 

Telegram, by contrast, endeavored to sell its tokens to U.S. persons via the Rule 506(c) exemption of Regulation D. At a predetermined future date, Block.one’s and Sia’s presale tokens converted to live network tokens. At a predetermined future date, Telegram’s presale tokens were to convert to live network tokens.

Block.one was fined $24 million, or about 60 basis points on $4 billion, and walked away, and its once-were-securities-but-I-guess-now-they’re-not coins continue to be listed on major exchanges. Comparatively smaller offender Sia was fined $250,000, or twice what they raised, and walked away. Telegram, by contrast, drew an emergency injunction in the Southern District of New York and the project has ground to a halt.

Of course, there are reasons why the SEC might be friendlier to some startups and less friendly to others. For example, startups that approach the SEC and cooperate will be treated more gently than those that do not. But, fundamentally, the real problem here is that the SEC’s “decentralization” test, as currently used, and as proposed to be used in the future, is unquantifiable to the point of being unconstitutionally vague.

There is no agreed statutory or technical definition of what makes a project more or less “decentralized.” When prominent developers and industry marketers cannot agree on a uniform definition of the term, which more often appears to be marketing-speak than as a definite, measurable quality, I struggle to see how the government should be in a better position to do so. For this reason, I would struggle to advise a client seeking to adhere to the “decentralization” test whether they are decentralized or not. 

The only thing that is made clearer by this proposal is that, to paraphrase an industry colleague, “’blockchain technology’ and Mom & Pop investors don’t have lobbyists. Coinbase does.” This proposal is fantastic for startups who need capital, market venues who need trading volumes to survive and the lawyers who advise them. For this reason, I don’t expect that many U.S. law firms will raise significant objections to this proposal which, if adopted, would almost undoubtedly be the single greatest creator of transactional legal work since the invention of securitization.

It would facilitate a headlong rush of issuers into the lightly-regulated crypto-capital markets as every company in the world sought to obtain American investors’ capital without selling them so much as a single basis point of equity or taking on a single dollar of debt, all without needing to sort out the details for 36 months.

If that’s the rule the SEC wishes to adopt and the result it wishes to bring about, that’s the Commission’s prerogative. I might suggest that a simpler approach would be for the government to approach tokens like it approaches bitcoin: treat coins sold in an initial coin offering as something sold, a securities sale, and treat a mined coin as something made, a mere commodity, which will still allow for a great many experiments in blockchain tech to flourish without creating incentives for every company in America to launch its own token.

Crypto scam numbers on the rise

The Wall Street Journal reports on Feb. 8:

Seo Jin-ho, a travel-agency operator in South Korea, wasn’t interested in exotic investments when a colleague first introduced him to PlusToken, a platform that traded bitcoin and other cryptocurrencies. But the colleague was persistent.

His investment grew at a dazzling rate. He invested more—a lot more. In less than five months, he bought $86,000 of cryptocurrencies, cashing out only $500.

The story ends in a familiar way, with Seo Jin-ho losing all of the money he invested.

Crypto-analytics company Chainalysis estimates that after a fairly busy 2017 in which $1.83 billion was “invested” in crypto scams, 2018 was a quieter year. This is perhaps understandable given the noises that the SEC made from January through November.

In 2019, however, a staggering $3.99 billion – that’s billion with a B – was reportedly lost to crypto-investment scams. This suggests that regulatory intervention in 2018 was not aggressive enough to deter the continuing growth of “scam” activity.

Clamping down on scams is almost universally understood as an important prerequisite to mass adoption and acceptance of cryptocurrencies as a viable payment and financial services technology. When asking why investors seem so uniquely susceptible to crypto scams, it bears mentioning that each of the top ten coins in circulation was issued otherwise than through a regulated channel, with the SEC and Department of Justice, at least as far as the public is aware, declining to take action against ethereum, tether, XRP, litecoin, Binance Coin, bitcoin cash, bitcoin SV and tezos, and taking a $24 million punt on EOS, despite there being identifiable promoters for each project (usually a notionally non-profit foundation but sometimes a for-profit entity).

The absence of an adequate regulatory regime means that a new “scam” project is virtually indistinguishable from one that has shed that label through accidental success. The marketing material for, say, ethereum and for any “scam” currency are primarily found on informal channels such as internet fora and Twitter promotional posts rather than in the form of an offering circular. The closest thing to “legitimacy” that any particular project can obtain is a listing on Coinbase or Binance, commercial actors with commercial interests that call for them to list and trade more coins in greater volumes, regardless of the gain or loss to investors.

A “safe harbor” that made it more difficult for retail investors to distinguish bona fide projects like Blockstack from known scams like OneCoin for a three-year period would likely undo much of the progress towards mainstreaming crypto adoption that has been made to date, which has seen large institutional players like Bakkt or Fidelity Digital Assets enter the space.

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US Presidential Candidate Bloomberg Suggests Cryptocurrency Regulation To Help Prevent Another Financial Crisis

As of Monday, February 17th, 2020, U.S. presidential candidate, Micheal Bloomberg, and his campaign team have published a formal financial reform plan, aimed at strengthening the U.S. economy and helping it recover from the “the damage Trump has done” following the financial crisis of 2008.

Amongst dozens of other financial recommendations, the formal proposal also included the mention of creating a “clear regulatory framework for cryptocurrencies.” According to Bloomberg, “Cryptocurrencies have become an asset class worth hundreds of billions of dollars, yet regulatory oversight remains fragmented and undeveloped.”

Better Late Than Never

Aimed at rebuilding the country’s financial future, Bloomberg’s plan suggests there needs to be more safety and transparency in the U.S. economy if another crash similar to the 2008 financial crisis is to be avoided.

For this, he suggested that financial institutions need to monitor their risk exposure better, as well as recording all financial transactions via a centralized database, on top of many other recommendations, such as working to strengthen the Consumer Financial Protection Bureau.

According to the proposal,  Bloomberg wants to “reform Wall Street and put the financial system to work for every American”.You Might Also Like:

  • Later Today: $40 Million Worth Of Bitcoin To Be Sold On Auction By The US Government
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And as far as creating a regulatory framework for crypto, he had this to say, “For all the promise of the blockchain, Bitcoin and initial coin offerings, there’s also plenty of hype, fraud and criminal activity”. All of which, according to many, represents a significant vulnerability and risk for the future of both the American and the global economy.

In other words, through the proposal’s recommendations, the hope is that Bloomberg and his team will be able to ensure that the mistakes made by Wall Street causing the 2008 financial crisis won’t ever happen again. And at the same time, he is mentioning that cryptocurrencies are going to have a part to play in it all.

Bloomberg For U.S. President

Although he has only recently joined the race for U.S President, Bloomberg has already sunken millions of dollars into his advertising campaign. And as of today, he is currently polling at around 16%, placing him in second place at the national level.

Bloomberg’s mention of cryptocurrency also made a recommendation of clarifying which U.S. agencies are going to be responsible for regulating the U.S. crypto industry.

The chosen agency will also be responsible for defining when tokens should be considered as securities, clarifying the tax system surrounding crypto, defining the requirements for financial institutions, as well as “protecting consumers from cryptocurrency-related fraud.”

As it is, this could be big news for the future of Bitcoin, which as of the time of writing this, is currently trading at around $9,918.75.

Featured image courtesy of Associated Press

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Cryptocurrencies price prediction: Bitcoin, Ripple & IOTA – European Wrap – 17 February

Bitcoin Price Prediction: BTC/USD banks on $9,700 support for reversal – Confluence Detector

Bitcoin continues to face increased selling activity on the first day of the trading this week. The drab action is a continuation of the weekend losses that jeopardized support levels at $10,200 and $10,000. There was a struggle to keep the price above $9,800 during the Asian house, however, the downward force saw the bulls scatter leaving a gap for another drop towards $9,700.

Bitcoin confluence levels

According to the confluence detector, BTC/USD is trading between stacks of support and resistance. The first hurdle is seen at $9,954; the region where the Bollinger Band 15-minutes upper, the 100 SMA 15-mins, the 38.2% Fibo one-day and the pivot point one week support one converge.

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Ripple Price Analysis: XRP/USD erased the gains of the previous rally

Ripple’s XRP has been collapsing for three days in a row. The massive sell-off caused by a global correction on the cryptocurrency market wiped out all the gains of the previous week and pushed XRP/USD below $0.2700 on Sunday. At the time of writing, the coin is trying to settle above $0.2800, however, an upside bias remains weak. XRP is down 10.5% on a day-to-day basis, and 4.6% since the beginning of Monday. Ripple’s current market value is registered at $12.2 billion, while an average daily trading volume amounts to nearly $4 billion in line with the figures of the previous days. 


IOTA team released wallet update, transactions are not resumed; IOT/USD stays under pressure

IOTA hit an intraday low at $0.2602 during early Asian hours and recovered to $0.2690 by the time of writing. The 24th largest digital asset has lost nearly 9% of its value in the recent 24 hours amid massive sell-off on the cryptocurrency markets. The coin has been losing ground since February 12, when major vulnerability of IOTA’s flagship wallet was discovered.

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